tv Capital News Today CSPAN July 23, 2009 11:00pm-2:00am EDT
and i'm honored to have the opportunity to serve with him. i share his praise for our relative -- our staffs, but i would also like to, in addition, thanks our floor staffs who have made our machinery run when it comes to a grinding halt from time to time and i'm grateful for their help and assistance and the hard work that they've given us as well. i think we have a managers' package and we'll be done for this year. but, again my sincere appreciation for the chairman who i've had the great honor and privilege now of serving with for nearly a quarter of a century. mr. chairman, i yield the floor. mr. levin: mr. president? the presiding officer: the senator from michigan. mr. levin: mr. president, first, let me thank my friend from arizona for thanking our floor staff. i over looked that. and even though we look at them hour after hour after hour,
somehow or another we manage to overlook that. their great service when it came to thanking everybody who's involved in this. so we do thank our floor staffs for their phenomenal work. mr. president, there are -- [inaudible] mr. levin: did you get that, "particularly lula" is what the senator said? did i hear the word "particularly"? yeah. oh, we did. thank you. senator mccain remembered to do that and i was appreciative that de. we have 19 amendments at the desk and i understand -- and these have been approved now by both senator mccain and i and the two leaders, as i understand, have all approved these 19 amendments. under the previous unanimous consent agreement, these amendments now are part of a managers' package, and with the approval of the four that i've just identified, i understand that these are now part of the bill. is my understanding correct?
the presiding officer: the senator is correct. mr. levin: i thank the presiding officer and yield the floor. mr. levin: mr. president? the presiding officer: the senator from michigan. mr. levin: mr. president, i ask unanimous consent that the senate proceed to the immediate consideration of h.j. res. 56, which was received from the house. the presiding officer: the clerk will report. the clerk: h.j. res. 56, approving the renewanewal of imt restrictions and so forth and
for other purpose. the presiding officer: without objection, the senate will proceed to the measure. mr. levin: i ask unanimous consent now, mr. president, that the joint resolution be read a third time and passed, the motion to reconsider be laid upon the table, and that any statements appear at the appropriate place in the record. the presiding officer: without objection, so ordered. mr. levin: mr. president, i ask unanimous consent that the senate now proceed to a period of monof morning business with senators permitted to speak for up to ten minutes each. the presiding officer: without objection, so ordered. mr. levin: i note the absence of a quorum. the presiding officer: the clerk will call the roll.
mr. levin: mr. president? the presiding officer: the senator from michigan. mr. levin: mr. president, i ask that the further proceedings under the quorum call be vitiated. the presiding officer: without objection, so ordered. mr. levin: mr. president, i indicated that there were 19 amendments that had been cleared by senator mccain and the leadership and myself, which under the previous u.c. would then be automatically made -- adopted and made part of the bill. in fact, there were 20
amendments on this list as it now appears before the -- our clerk. including that modified sessions amendment, which is now 2 numbe. and so i just wanted to clarify the record that o that point. there are 20 amendments on that -- record on that point. there are 20 amendments on that list. number 20 being one we thought we previously approved but apparently not. so we intended it be on that list and we are assured by the staff that this is the way we can correct that problem. the presiding officer: the record will so note. mr. levin: i thank the presiding officer and i thank senator mccain and his staff -- senator mccain's staff for bringing that to our attention. mr. president, i ask unanimous consent that when the senate completes its business today, it adjourn until 9:30 a.m.
tomorrow, friday, july 24. that following the prayer and pledge, the journal of proceedings be approved to date, the morning hour be deemed expired, the time for the two leaders be reserved for their use later in the day, that there then be a moment of silence in honor of the fallen capitol police officers, and that following the moment of silence, there be a period of morning business with senators permitted to speak therein for up to ten minutes each. the presiding officer: without objection, so ordered. mr. levin: mr. president, there will be no roll call votes during tomorrow's session of the senate. senators should expect the next vote to begin around 5:30 p.m. on monday next. and if there is no further business to come before the senate, i ask it adjourn under the previous order. the presiding officer: the senate stands adjourned until 9:30 a.m. tomorrow.
>> the committee will come to order. after consultation with my friend and colleague from alabama we are going to do is i am going to -- we have two items to deal with, obviously the hearing this morning dealing with systemic risk but we also have to go into executive concession to consider in the original bill entitled public transportation extension act of 2009 and we believe 12 members here to actually vote out this bill but i think what we will do is i'm going to have a brief set of remarks about that bill, very brief. senator shelby will make brief comments about it and as soon as we get the 12th member to show up we will have a voice vote on that bill but in the absence we will go for work actively with the hearing so we are not wasting time and having people wait around until the 12th member shows up.
we are getting close here three, four, five, six, seven. we will be considering as i mentioned here to public transportation extension act of 2009. this is a bill that authorized, been authorized under the safe accountable transportation equity act a legacy for users. this bill was developed in a bipartisan fashion with my colleague and friend senator shelby and his staff and extensive public transportation programs for 18 months from october 1st of 2009 through march 31st 2010. at fiscal year 2009 authorized funding levels. we expect this bill will emerge with similar bills from the environment public works committee, commerce committee, finance committee's on the senate floor next week. let me just express if i can my view. while i agree with the
administration and leadership on this and then there is simply too much on our plates as an overall body to move a transportation bill, surface transportation bill through congress this year. i am not ready to concede we cannot move forward on a bill next year. by get the 18 months is there. it depending how things work this year we could get to a transportation bill next year and the at fenestration presented its 80 month extension proposal to senate leaders i advocated for six months instead so we could try to get a bill next year rather than wait until 2011. regardless of the length of the extension as i intend to work with colleagues on this committee principally but also with others try and move a bill early next year if the opportunity presents itself investing in highways and bridges, transit systems, high-speed rail, i think it is too important for the nation's future economic competitiveness and growth and quality-of-life to put off for too long and in
these difficult economic times it's important to remember these investments made good and decent jobs to people across the country. a new transportation bill is needed to both reform the way we approach transportation policy and to increase the amount of funding we invest in our transportation infrastructure. one change needed in the transportation policy a special interest in this committee is the need for renewed commitment to investing in public transportation. it's our jurisdiction we must assume responsibility for and if we are to address the challenges like climate change, energy security the worsening traffic congestion that all of us have to confront not to mention a significant population growth and demographic changes we need to take a look at public transportation and for all of these reasons i'm going to continue to work with colleagues on this committee as well as those in the full senate and house and of course the administration to look for opportunities to advance a transformational transportation bill early next year or as soon
as we possibly can. i'm going to turn to senator shelby for any comments he may have. senator bob menendez has an interest in the subject matter and wants to be heard roswell and again as soon as we have the 12th member they both will be allowed. senator shelby. >> i would like my statement to be part of the record and other than that i want to associate myself with your remarks. this is an 18 month extension. it's clean. but what we really need is to do the real bill. we need to continue to do that, and if we did there will be certainty out there for a long time i hope we will not wait until the deadline because it's not working again. >> i appreciate that very much and will now switch gears and moving to our hearing this morning. i will make some opening comments and turn to senator shelby for his and then invite our distinguished witnesses to join and i advanced apologize if we interrupt your testimony. once the 12 member our rights to go back into calendar deal with
this legislation. let us shift gears if we can now to the hearing and that is as i mentioned earlier, the hearing to establish a framework for systemic risk regulation. let me share some thoughts if i can and again we've had a lot of discussion about the subject matter over the last number of months. we've had some 40 hearings since january not all that on this subject matter but the bold have been on this issue how to modernize our financial regulatory structure, not only to address the problems that brought us to this point but also how do we create the architecture for the 21st century to allow us to move forward with innovation, creativity that's been the hallmark of the financial service sector and once again restore the credibility of safety and soundness that has been the hallmark of our core financial service sector for so many years and it collapsed on the view of many over the last number of years resulting in the economic problems so many fellow citizens are facing with
joblessness, house foreclosures, retirement accounts being wiped out an ancillary problems the congress is suffering. systemic risk will be an important factor in all of this and i can't begin to express my gratitude to my fellow members here because unlike other matters the congress is dealing with, my sense on this matter this is not one that has any ideology i can sense to it at all. whittle's one to figure out is what works best, what makes sense here. not that we are going to solve every future problem. i think we make a mistake if we are sort of promising what we cannot. if we look back and see where the gaps have been either one where there was no authority or not to it was authority not exercised and how we felt those gaps in a way that makes sense i think will be a major contribution and i want to particularly thank senator shelby, the former chairman and ranking member now. we've had conversations together.
we don't have a bill ready. there's been a lot of talk at this point but i get a lot from my colleagues that we share common views about this and that is a good place to begin. it doesn't mean we are going to agree but i since the overwhelming majority here are committed to that goal of establishing what makes sound and solid regulatory process. the economic crisis introduced a new term in the vocabulary systemic risk. malta words we use much. i don't recall using those at all back in the years. it is the idea that in an interconnected global economy it is easy for some people's problems to become everybody's problems and that is what systemic risk is. the failures that destroy the nation's most prestigious financial institutions also devastated the economic security of millions of working americans who did nothing wrong and never heard of these institutions that collapsed and put them at great risk. jobs, homes, retirement security, gone in a flash because wall street, agreed in
some cases, regulatory neglect and others, resulted in these problems. after years of focusing on short-term profits while ignoring long-term risks, a number of companies, giants, of the financial industry found themselves in very serious trouble. some, as we know, tragically failed. some were sold under arrest and an untold number only survived because of government into interventions, loans, guarantees. taxpayers have no choice but to step in. that's my strong view. assuming billions of dollars of risk and save companies because our system wasn't set up to withstand their failure, their efforts saved our economy from catastrophe of real damage remains as we all are painfully aware. investors who lost billions were scarred or scared to invest. credit markets dried up with no one willing to make loans. businesses couldn't make payrolls.
in police were laid off and families couldn't get mortgages or loans to buy an automobile even. wall street failures have hit main street as we all know across the nation, and it will take years, perhaps decades to undo the damage a stronger regulatory system i think could have prevented. while many americans understood why we had to take extraordinary measures this time, it doesn't mean they are not angry because they are. it doesn't mean they are not worried, and they certainly are that, and it doesn't mean they don't expect us to fix the problems that allowed this to happen. first and foremost we need someone looking at the whole economy for the next big problem with the authority to do something about it. the administration has a bold proposal to modernize our financial regulatory system that would give the federal reserve new authority to identify, regulate and supervise all financial companies considered to be systemically important. it would establish a council of regulators to serve in a solo advisory role and would provide a framework for companies to
fail if they must feel in a way that doesn't jeopardize the entire financial system. it is a thoughtful proposal but the devil obviously we all know is in the details and i expect changes to be made in this proposal. i share my colleague's concerns about giving the fed additional authority to regulate systemic risk. the fed hasn't done a perfect drop to put it mildly with the responsibilities it already has. this new authority could compromise the independence that it needs to carry out effective monetary policy. additionally systemic risk regulation involves too broad a range of issues in my view for anyone regulator to be able to oversee and so i'm especially interested to hear from the witnesses this morning and their ideas how we like to get this right. many of you suggested the council with real authority that would effectively use the combined knowledge of all the regulatory agencies. as president obama said when we've rebuilt every economy we must assure its foundation rests on a rock, sand and today we
continue the work to lead the cornerstones of the foundation, strong, smart, effective regulation that protects working families without hindering growth, innovation, creativity that has been again the hallmark as i said earlier of the financial-services sector and with that let me turn to senator shelby and then introduce our first panel. >> thank you, mr. chairman. core of the administration's financial regulatory reform proposal is the concept of systemic risk the president believes it can be regulated and that the fed should be the regulator. but as we begin to consider how to address systemic risk my main concern is while they're appears to be a growing consensus for a systemic risk regulator there is no agreement how to define systemic risk let alone how to manage it. i believe legislative malfeasance to simply tell a particular regulator to manage all financial risk without
having some consensus on what systemic risk is and whether it can be regulated or not. should we read such a consensus i believe we then must be very careful not to give our markets a false sense of security that could actually exacerbate our too big to fail problem. if market participants believe that they no longer have to closely monitor risk presented by financial institutions the states will be set for the next economic crisis. if we can decide what systemic risk is and that is something that should and can be regulated i believe the next question should be who should regulate. unfortunately i believe the administration's proposal largely places the federal reserve in charge of regulating systemic risk. it would grant the fed has understand the paper the authority to regulate any bank securities firm in sure, investment fund or any other type of financial institution
that the fed deems a systemic risk. the fed would be able to regulate any aspect of the firms even over the objections of other regulators in effect the fed would become a regulator one giant of unprecedented size and scope. i believe expanding the fed power in this manner could be very dangerous. the mixing of monetary policy and bank regulation has proven to be a formula for tax payer funded bailout and poor monetary policy decisions. given the fed ultimate responsibility for the regulation of systemically firms will provide further incentives for the fed to apply its regulatory failures by bailing out troubled firms. rather than undertake the politically painful task of resolving failed institutions the fed could take the easy way out and rescue them by using the lender last resort facilities or open market operations.
even worse, it could undertake these bailouts without having to octane the approval of the concourse. in our system of government elected officials should make decisions about fiscal policy and use of taxpayer dollars not on elected central bankers. handing over the public purse to an enhanced failure simply inconsistent with principles of space government. augmenting the federal reserve's authority also risks burden with more responsibility than one institution can reasonably be expected to handle. in fact, the federal reserve has already overburdened with its responsibility for monetary policy. the payment system, consumer protection and bank supervision. i believe anointing the fed is the systemic risk regulator will make what is proven to be a bad bank regulator even worse. let us not forget that it was the fed that pushed for the adoption of the fault ball to the capitol records right here in this committee which would have drained the banking system
of capital. it was the fed that failed to adequately supervise citigroup and bank of america setting the stage for bailouts in excess of $400 billion. it was the fed that field to adopt mortgage underwriting guidelines until well after this crisis was under way. yes, it was the fed that said there was no need to regulate derivatives, right here in this committee. it was also the fed that lobbied to become the regulator a financial holding companies as part of gramm-leach-bliley. the fed one the fight and got the additional 40 it sought. ten years later however it is clear the fed has proven it is incapable of handling that responsibility. ultimately i believe if we are able to reach some sort of agreement on systemic risk and whether it can be managed by strongly believe we should consider every possible alternative to the fed has a systemic risk regulator.
thank you mr. chairman. >> thank you, center and we are still missing 1i think. i need 12. if i have a colleague that can count walter i'm willing to move ahead. after all, this is washington. [laughter] >> we will wait for the 12 to arrive. >> is their someone sitting here? [laughter] let me invite sheila bair and mary schapiro and dan tarullo and injured as people who hardly need an introduction people who've been before the committee on numerous occasions. sheila bair as we know is the chair of the federal deposit insurance corporation, served as assistant secretary of the treasury extensive background in banking finance and of course many appear have known her over the years when she was legal counsel to bob dole and did a great job in that capacity as well. so very familiar with the senate institution.
mary schapiro was the chair of the securities exchange commission and prior to her appointment this year she served as ceo of the financial industry regulatory authority finra and also served in the sec under ronald reagan's administration and president bush 41 and the clinton administration. dan tarullo, i will finish this and turn to executive session is the new member of the board of governors federal reserve system and a familiar figure many of us serving in public life on numerous occasions in the past according to the concluding assistant secretary of state for economic of business affairs. before he served as chief counsel for employment policy on the stuff of our good friend senator ted kennedy as well and taught at georgetown university law center and worked in the clinton administration so thank you, dan, for your service and as well as mary and she lived. let me turn if i can to the market and i just informed my colleagues who arrived after statements were given were considering of course this
extension of the transportation bill and we have completed our statements. bob menendez has not arrived but i am going to do this when he comes and we will allow him at an appropriate time to intervene and make comments to apply to the conversations we've had about transit bill i want to move along if we can. ..
when will as reconsider who modernization of the federal regulatory structure will be included in the record and that is true of all our colleagues here as well and we like if you could try to use those remarks to five or seven minutes so we can get to the questions as quickly as possible. thank you for joining us. >> mr. chairman, members of the committee, i appreciate you holding this hearing. the issues under discussion today approach to the imprints that is before the congress in the wake of the great depression. we are emerging from a credit crisis that has wreaked havoc on our economy, homes have been lost, jobs have been lost, retirement and investment accounts have plummeted in value peridot the proposals put forth by the administration to address the causes of this crisis are thoughtful and comprehensive. however, these are complex issues that can be addressed in a number of stairways. it is clear that one of the causes of our current economic
crisis in is a significant regulatory gaps within the financial system. to assist in the regulation of capital, leverage, complex financial instruments and consumer protection in which are adjudge became rampant. reforms are urgently needed to close it is regulatory gaps. at the same time we must recognize have much of the risk in this system and all financial firms that were already subject to extensive regulation. one of the lessons of the past several years is that regulation alone is not sufficient to control risk taking within a dynamic and complex financial system robust incredible mechanisms to ensure that market participants will actively monitor and control risk-taking must be in place. we must find ways to impose greater market discipline on systemically and foreign institutions. a properly functioning market economy there will be winners and losers and when firms two their own mismanagement and excessive risk-taking are no
longer viable they should fail. actions that prevent them from failing ultimately distort market mechanisms including the incentive to monitor the actions similar situated firms and allocate resources to the most efficient providers. unfortunately the actions taken during the past year have reinforced the idea that some financial organizations are too big to fail, the notion of too big to fail creates a vicious circle that needs to be broken large firms are able to raise hues amount of debt and equity in there given access to the credit markets as a favorable terms without sufficient consideration of risk profile. investors and creditors believe their exposure is minimal since they believe the government will not allow them to avail. the large firms leverage to them and become larger which means investors and creditors more complacent and more likely to extend credit without fear of loss is. too big to fail must then. down today shareholders and creditors of large firms rationally have every incentive
to take excess -- excessive risk and enjoy the upsides other downside is capped investment and went too big to allow the government accepts that. for senior managers incentives are more acute, paving large perth to stock options, a senior managers have an even bigger and some say in going for broke because they're upside is some is bigger and a possible loss. and, once again, with two big to fill the government takes the down side. to end to big to fail in the to solution that is as practical as i did and highly credible mechanism for the orderly resolution of the institutions similar to that which exists for the fdic banks. when the fdic close is a bank shareholders and creditors if the first loss. when we call for resolution mechanism we are not talking about propping up the field firm and its management. we are talking about a process with bank is close, shareholders and creditors suffer severe losses and management is replace in assets of the failed
institution are sold off. this is harsh but it quickly reallocated act -- assets and to the private sector into the hands of better management and also sends a strong message to the market that investors and creditors will lease losses in when an institution fails. so-called make assistance which put the interests of shareholders before that of the government should be prohibited. make no mistake i support the actions regulators have collectively taken to stabilize the financial system. lacking in the price the resolution mechanism we did what we had to do. but going forward and open bank assistance by any government entity should be allowed only upon invoking extraordinary systemic risk procedures and even then the standard should be tied into to prohibit the sissons to prop up any individual from. or over would ever systemize support is provided they should be based on is a specific finding that support should be least costly as a home. in addition potential as a civic
institutions should be subject to assessments that provide disincentives for complexity in high-risk behavior. i'm pleased that yesterday the president expressed support for the idea of assessment puritans raised for this should be kept in reserve to provide working capital for the resolution of large organizations to further insulate taxpayers from law. without a new comprehensive resolution regime we will be forced to repeat the costly ad hoc responses of the past year. in addition to credible resolution process there is a need to improve the search for the supervision of seven clamper and institution and create a river that proactively identify issues that pose a risk to the system the new structure featuring a strong oversight council should address such issues as the industry's excess of leverage and adequate capital and over reliance on short-term funding. it council of regulators will provide this is our perspective and expertise to do this is a holistic play. a wide range of views makes it
more likely will capture the next problem before they happen. as with the fdic board becoming a systemic risk council cannot accurately and efficiently in a crisis. the combination of the approval process of orderly close and, your supervisory structure and counsel that anticipates an mitigates risk developing both with outside the financial sector will go a long way to assuring the problems of the last several years on not repeated and that any problems that to rise can be handled without cost to the taxpayers. thank you very much. >> thank you very much. in chairman bair chairman schapiro. >> thank you, chairman and members of the committee, i am pleased to be here today with my colleagues from the fed and fdic. there are many lessons to be learned from there is some financial crisis and a key one is that we as regulators need to identify it and monitor and reduce systemic risk before they
threaten stability of the financial system. however, inner areas to minimize the potential institutional failures to francis and we must take care not to unintentionally facilitate the growth of large interconnected institutions whose failure might later pose even greater systemic risk your crown to best address these we must rely on two lines of defense. first there is judicial oversight and regulation. this includes enhancing existing regulation, filling gaps, increasing transparency and strengthening enforcement to prevent systemic risk from developing. second we should establish a workable macro credential park and resolution regime that can identify to reduce an online systemic risk if they develop. close and regulatory gaps is an important part of reducing systemic risk. if participants realize they can into this same economic dance with your costs they will do so quickly, often with the size and
leverage. we have seen this time and again as recently with over the counter in derivatives instruments which major institutions engage in enormous for chile unregulated trading in synthetic versions of other off a highly regulated financial products. we can do much to reduce systemic risk close this gap cynosure similar products are regulated similarly. in addition to filling gaps in its rich heritage transparency of risk. transparency helps reduce systemic risk by enabling market participants to better allocate capital and giving regulators more information about risks that are building in the financial system. transparency has been utterly lacking in the world of unregulated over-the-counter derivatives to hedge funds and dark pools. additionally we need to recognize the importance of horsemen place in sending a strong message to market participants. as the second line of defense and there is anita summers in
the primer for macro credential oversight, a key element of the administration financial regulatory plan. within the framework family of the most appropriate approach consists of a single systemic risk regulator and a very strong counsel. in terms of a systemic risk regulator and a breather in is to be a governmental entity responsible for monitoring our financial markets for system one risk. this could be performed by the federal reserve or buy a new entity specifically designed for the task. this is an aggressive regulator should have access to information across the financial markets about institutions that pose significant risk. and to be able to monitor whether institutions are maintaining of appropriate capital levels and should have cleared delegated authority from the council to respond quickly in assuring their circumstances. most of primly the regulators to serve as the seconds of bias of the institution's failure might put it at risk. at the same time i agree that
the systemic risk regulators must be combined with a newly created counsel. a believe any council must be strengthened well beyond the framework set forth in the administration's paper. the council should have authority to identify institutions, practices and markets that a potential systemic risk and to set standards for liquidity, capital and other risk-management practices in a institutions. this hybrid approach can help minimize systemic risk in a number of ways. first the council would bring different perspectives that identification of risk that individual regulators -- are considered too small to warrant attention. second the members on the council would have experience regulating different types and sizes of institutions so the council of the more likely to ensure that risk-based tableaus to leverage requirements do not unintentionally foster greater systemic risk. and the council would included
multiple agencies and thereby reducing potential conflicts of interest to regulatory capture. in finally the council would monitor the growth and development of financial institutions to prevent the creation of institutions that are either too big to fail where too big to succeed. at most times alice by the council and systemic risk regulated to work with and through primary regulators who are experts on province and the activities of regulated entities. the risk regulator gambrinus second layer of review of the activities, capital and risk management assistant clyburn institutions as a backstop to ensure that no red flags are mess. to ensure that authority has attacked the decision is not arbitrary the council would remain the place where a general policy is that and differences remain between the council and pri regulator the more stringent standard should apply. for example on questions of capital the new systemic risk
from our should be in a position to raise standards for regulatory capital with institutions not lower them. this will reduce the ability of a single regulator to compete with other regulators by lowering standards driving the race to the bottom. and finally the government needs a credible resolution mechanism for unwinding systemically and foreign institutions. currently banks and dealers as subject to resolution processes but no corresponding resolution process exists for the holding company's the seventh place in the area of financial institutions here and i believe we have an opportunity to create a former fl hub prevent the risk that it and have it in our financial system. and i believe we can trade a credible regulatory regime that will help restore investor confidence. i love for two working to adjust to the issues and doing all it can to foster is a for a dynamic and more nimble and financial system. thank you. >> thank you very much chairman
schapiro. mr. tarullo, welcome to the dominican and thank you, mr. chairman and members, i prepared statement sets forth in some detail the positions of the federal reserve on a number of proposals that have been brought before you so i thought i would use the center -- remarks to offer a few more general points. first i think the title given this hearing captures the task 12. establishing a framework of systemic risk regulation. the task is not to enact one piece of legislation or to establish one overarching systemic risk regulator and then to move on. the shortcomings of our regulatory system or to widespread, the failure of risk-management to financial firms two pervasive, and the absence of market discipline to apparent to believe that there was a single cause of much less a single solution for. the financial crisis we need a broad agenda of a basic to changes at our regulatory agencies and in financial firms
into a sustained effort to embed market discipline in financial markets. second, the too big to fail problem looms large on the agenda. therein lies the importance of proposals to ensure that systemically important institutions are subject to supervision here to promote capital and other kinds of roles and that will apply more stringently as systemic importance of an institution increases and to establish a resolution mechanism that makes the prospect of losses for predators real unit of the largest of financial institutions. but too big to fail for all its importance was not the only problem left unaddressed for too long. the increasingly tiny round connections between lending and capital markets including the explosive growth of that shadow banking system was not dealt with as leverage to build up and threw out the financial system. that is why there are also proposals before you pertaining to derivatives, money market
funds, rating agencies, where is projects and a host of other issues involving every financial regulator. third, in keeping with my first point on a broad agenda for change, that is a few words about the federal reserve. even before my confirmation i had begun conversations with many of you on the question of how to ensure the shortcomings of the pass would be rectified and the right institutional structure for rigorous regulation put in place and particularly in light of the need for a new emphasis on systemic risk. this colloquy and continued to the prior hearing conducted empire subsequent conversation that i've had with many of you. my colleagues and i thought a good deal of this and are moving for the series of changes to achieve these ends. for example, or instituting closer coordination and supervision of the largest holding companies with an
emphasis on horizontal reviews that simultaneously examined multiple institutions. in addition building an experience with the process that do so successfully upon the analytic financial capacities of the divisions of the board, we will create a quantitative surveillance program that will use a variety of data sources to identify, developing strains and imbalances affecting individual firms and large institutions as a group. this program will be distinct from the activities of the on-site examiners so as to provide an independent perspective on the financial conditions of the institutions. fourth and finally, i would know that there are many possible ways to organize or to reorganize the financial regulatory structure. many are plausible but as experience around the world suggests none is perfect. there'll be disadvantages as
well as it manages to even good ideas. one criterion that i suggest you keep in mind as to consider various institutional alternatives is basic principle of accountability. collect the bodies of regulators' concern purposes examining laden problems, cornyn in response to new problems, recommending action to plug regulatory gaps and scrutinizing proposals for a significant regulatory initiatives from all participating agencies. know when it comes to specific regulations are programs our implementation though collective bodies often diffuse responsibility is continuing to lines of accountability which i know this committee has been so much attention to. achieving an effective mix of collective process and agency responsibility with an eye toward relevant institutional incentives will be critical to successful reform. thank you very much mr. chairman
and i'd be happy to answer questions can i thank you very much. we appreciate your testimony and involvement with the committee as well here and i asked the clerk to put on six minutes and try to keep an eye on that, we have a lot of participation and want to make sure we get around to people and ask the staff to give a very accurate account of their arrival of members in terms of the order in which asks to address the questions to our panel. let me begin with you, mr. tarullo, if i can. i suspect a lot of the questions i will raise a you will hear variations of the same questions and i suspect there is a thing that will emerge here. you testified that the administration's proposal and to give a the fed supervision is incremental and bills omnibus authority and the bank holding ag in the till your plan for new surveillance program but you have mentioned here for a large complex organizations that look
emerging risks to the system as a home. of this land as biggie about you because you are new to this been given the federal reserve history and record on this as an institution as we look back. why should we in this congress have any confidence in the federal reserve and that no one is said and today, but given history of the federal reserve you can argue this authority has insisted and don't need you who authority and had that for a long time. serve and all the powers are there in the personnel and to do a job and there was an abysmal failure when it can see these institutions so why is this juncture to this committee where the congress have a heightened degree of confidence the federal reserve having tilda navigation given authority for years should be granted expanded authority in that? command center, the me say a couple of things about five.
is a note in my prior capacity i had a fairly broad base of criticisms by the regulatory system as a home. i continue to believe that when the final history of the plan is a crisis is written there will be a lot of blame to go around the regulatory institutions and private institutions. this was not a single failing, this was a broad base failing at home and has have seen internationally as well. second, and let me be clear, i think that includes in the attic with whom were flawed approach to supervision and the banking agencies including the fed second, i will say that i think that history steps, history since and the relative position of agency shift overtime. i remember when i was in law school standing this set of issues. the federal reserve was regarded
as the most aggressive of the regulatory agencies and the other agencies were regarded as somewhat more accommodating so i think there is a rhythm that goes with the times, with the leadership of an agency, and with a general orientation of public policy. sissons i have gone to the fed or before that, since i began having conversations with you and other members, what i have been trying to determine is the degree to which has the capacity and the resources are present to do when what is in some sense the same job but that should have been done better to be honest and some sense is endeavoring job because i don't think anybody actually was focus on the system a part of the problem as much as they like to have been, it was more silo approach to regulation. and that is why i think both with respect to making some changes in prevailing loss of
that it is clear that a supervisor of the holding companies has authority to do examinations of a functionally regulated subsidiaries when necessary, those sorts of things need to move toward hipaa and things are fundamentally one has to be done the kind of thing and mentioned a moment ago which is to put in place a system within the institution that has its own kind of cross checks, john upon the substantial resources of a agency and are substantial resources there and the research and monetary affairs parts of the board's to provide exactly the kinds of information that will enhance a provision. and that is i think the task which someone has to perform center, and that is either going to be done her by the federal reserve, another agency, is out to be done somewhere. my belief is based upon my six
month experience with the fed that under chairman bernanke leadership, it can be done. but i don't think anyone should underestimate the task and i would just seconds something you said in your a introductory, i hope people are not expected that anything the sec or fdic or anybody else does is going to limit potential for systemic risk, is just not going to happen. and that is where i think we've had to keep in mind. let me tell you one final thing -- the proposal, the administration's proposal out of many very in much have they really mean to invest in a particular agency. back and arm are cheering you and i talked back-and-forth a good bit about the different possible functions of a systemic risk regulator. with the possible exception of some of the proposals for the council as have been described
most proposals don't talk about a systemic risk regulator, they talk about allocating a set of responsibilities to agencies more collective groups and i think that's the way it should be. is it really don't thank you need or want some much responsibility as well as authority and money one agency to say have responsibility for having carried out with the problem and have authority to do what every think is necessary. >> let me turn to you for two quick questions and play the devil's advocate. again i am still agnostic on this although i am leaning toward the council approached. but let me take his side and the arguments of the administration and raise it with you -- i will give my best shot and give the sign the agreement the this is a new idea or fooling around with a council and agencies that don't necessarily have a can of expertise and background of a
federal reserve hearing that will spell this out a bunch different agencies so no one is really in control of authority and the federal reserve has experienced, they've done a bad job over the years but to start with the have the capacity and knowledge to his desk. we know about the fed and you're asking me to preach something altogether new and may not function well off to handle systemic risk, and very important issue. why should they take a leap of faith in something trading in whole new entity that may include the fed but is going to have the problem of spreading out the responsibility in such a way you'll never figure out who is running the shots in a sense the seventh risk suffering terribly and spites given a nice name and hiring nuys people, it will not make the kind of decisions needed that a single regulator but experience to do the job. why is that not a bad idea? >> well, obviously we disagree with add. we think the council with rulemaking authorities to have
some authorities. it would be highly effective marceau and monitoring force a summit risk in taking action to address it. the more ice you have looking from different perspectives and see the fdic difference from the sec who so i think bringing the prospectus together will strengthen and not making it. you are talking about tremendous power invested in whenever the entity will be and i think in terms of checks and bounces it is helpful to have multiple views expressed and coming to a consensus. it is a lot of this informally but there is no forcing mechanism and there are discussions about otc derivatives and harmonizing capital standards by having it formalized group with a head off chairs with dealing with a kind of setting issues, harmonizing standards to make sure there is some arbitrage and may share risk of the system is appropriately address. i think is extremely important here and i was and i think we
have a middle ground in terms of institutional regulations and would not advocate the fed losing its holding company, they do that and other risks to the extent there are other systemic institutions that are not under that prudential framework and we think the council should make a determination regarding that but was say it would be fine per the fed to be the regulator for the institutions. but i think the power that is contemplated in and frankly is needed and in much better invested in a council of regulators so i think can work together member has three agencies and make decisions quickly. >> i will wait for another round of consumer financial products safety agency idea and delay that. >> thank you mr. chairman. mr. tarullo, in your testimony you. to believe interest obama's
reform proposal and i'm curious to know if you buy this position as a member of the board of governors after conducting independent assessment of the plan which i hope is the case otherwise would call into question the so-called independence of the fed. could you provide the committee with the data and analysis that you used to make the determination that the obama plant was optimum approach? >> center, i would not say that the board's position is endorsement administration's plan and i think which you saw in my testimony would reflect the position of the boren is a sense that the administration is moving in the right direction on these key components one that there are obviously a lot of details many of which we don't know and didn't come based on the white paper only to find out as they set up legislation to
you, i think -- >> that is not our legislation, they want to send it up and go to think we should prepare our own? >> all i am saying is we couldn't figure out in some cases exactly what of their proposals meant which is why the testimony in his praise in such a way as to agree with a concept meaning to have every system grandpa and institution supervise and leading to have a resolution mechanism. as you probably saw spend it -- the fed is not having them. the new consumer agency, not posing an either. >> let me get into that, safety and soundness regulation imprint. in your testimony states there are synergies between the monetary policy and systemic risk regulation. in order to counter the synergies you argue the fed has become a systemic risk regulator
as i understand. yesterday chairman bernanke testified he believed there are synergies between bank regulation and consumer protection. this argues in favor of establishing one consolidated bank regulator. do you agree with chairman bernanke that there are synergies between supervision and consumer protection and to you believe that the obama administration's call for a separate consumer agency would undermine the safety and soundness regulation that we have? >> center, as i said in my introductory comments there are multiple ways to organize a financial-services regulation. many times you have competing ideas each of which has mayoress in each of which have demerits with respect to the consumer protection issue the administration made a proposal which i think a lot of people have some sympathy with because
it focuses on consumer protection and say we will get one agency the exclusive authority to regulate a consumer matters and thus they will be 100 percent devoted to doing that. what we have in the testimony is meant only to suggest that there are some things that would be lost by doing that as well as things gained and with the chairman was suggesting yesterday is there is a synergy or interaction between prudential regulation and consumer protection regulation at least both been done well. the synergy is both in the substance of things that is having some sense of what makes and an eye to consumer protection regulations because you know the way in which institutions operate but also and a practical sense as you have got one court of examiners is an economy of scopa in having
them who've looked at the multiple sets of issues within the same realization so i definitely think there are synergies, there are some benefits to go back and forth. if you take consumer protection away you probably lose some of those. i guess the position would be joaquin things along the line. >> chairman bair, the obama administration's proposal would have regulators designate certain firms systemically important, these firms who would be classified as tier one financial holding companies and would be subject to a separate regulatory regime. and some firms are designated as a cynical important, when the signal to market participants that the government will not allow these firms to fail and if so how would this or some are too big to fill a problem? >> we do have concerns about
formally designated institutions and is a special class. the same time we recognize there may be large interconnected financial entities that are not yet subject to a consolidated supervision and most other result of the crisis but some type of formal designation i thank you need to think about for other reasons to express. in any recognition should be a stigmatizing and designation, not something that is favorable and this is why we do feel so strongly airbus resolution mechanism needs a very large and financial combination with any type of new entity to provide supervision or recognize the mace be systemic. >> i want to get back on the consumer protection. there is testimony last week on that that this would change the whole model from a classical approach to consumer protection
to a haverhill approach. have you done some work in that area? avila that closely at? >> i have to be honest, i am not sure what that refers to hear and i can only tell you the way based on what i have learned since i have been an the fed the way in which the division says consumer protection and generous proposal is one that has a fairly important behavioral orientation of to and including the type there is a sense of consumer testing done before regulations presented to the board to make sure for a sample that if what you're trying to do is to disclose terms of a consumer contact that the terms discos and will mean something to a consumer and be useful to them so in that sense it is not just a talk down rational person think but i to lead tried to determine how real people really do think. a. >> to put a lot of power and bureaucrats, would not?
>> to create -- >> if we created something like a proposal which i hope we don't would put a lot of power into bureaucrats to make it depends, obviously it depends on the mandates and the scope. that obviously is to be determined by you. i think that people at the fed would agree strongly with the proposition that the new cb good solid consumer protection in the financial-services area. obviously we also think that should be done in a well organized fashion with due process for everyone involved. >> thank you very much and i will point out that as a jim bunning points out on countless occasions we gave sec the authority in '94 to deal with consumer protection and give them 14 years to promulgate a single regulation so i appreciate the concern about consumer protection. senator reid. >> thank you mr. chairman, thank you chairman schapiro and
chairman bair and governor tarullo. i will start with chairman bair, a general question for everyone. as i understand the proposal by the lighthouse, the ot as would be eliminated so effectively all financial and regulation would be lodged in the federal reserve. that there would impact be at least the elimination of the withholding act and those would be financial holding companies under the federal reserve. so direct regulation after this legislation by the fed would be comprised most if not all the systemic institution say perhaps insurance companies that might be outside to deal with that and very large now so large ones but operating in very recklessly. so with that framework what does the council, how does the
council relate to that to regulator that has full and direct authority and, in fact, in the proposal would eliminate that a function of the regulators? so that i think a look through every part of the institution. what role does the council play in that reality or should play? >> well, i think there are still issues regarding across markets cents a function is within the holding company that may be individually regulated and there will still be practices and products that may be outside that system and seduces may do. you have a lot of third-party mortgage brokers originating the bad marriages that are being funded to multiple forces including non -- finance companies and wall street firms so i think that there is plenty of opportunity for risk to be in assess across the system by any entity in terms of products and
practices and also within the large holding companies reservoirs' of expertise and investment banks and dealers from the sec in national league tournament, the provincial regulator and the fdic. i think in particular capital standards applying across the board making sure there are no opportunity to barbara josh and i think that was a very major issue. i think otc derivatives, some derivatives will be traded on exchanges as on central clearing houses and others still be done by the otc derivatives market makers and seeing how capital across a system of tax incentives whether it made can get together to drive this to a more standardized training those are interagency matters and go across agency rulemaking. i actually see a lot of credit counselors preserving subpoena authority to make institutional regulator. >> specifically with the council
in your view designate the tier one warrant the entities? >> that is tremendous power to say to an institution we are going to bring in so i think that power is needed but it is better to be exercised by the council whether diversity system of checks and balances. >> and the council would formally begin of the resolution process? >> i think we could discuss that. i think we have been talking about that internally and for systemic institutions those men have it systemic impact that might be a role for the council and, on the other hand, to the extent resolution will in all potential short-term assistance. what we call the three keys and the fdic, the fed, the treasury in consultation with the president might be another model to look at and those of the three that have to put the money on the table so to speak to deal of the situation so that is the
way the system works now. if you rely on the system this estimate risk i indicated should be much harder to provide assistance. >> chairman schapiro, a 91 governor tarullo comment to. can i thank you, i agree very much with what sheila said it. i think it council is credited to -- critical about the financial markets to the deliberations of all the regulators. and this diversity of views does need to reach across equity markets, futures and derivatives markets, the banking institutions, clearance and settlement systems and across all huge riding of derrin products and women don't bring diverse perspectives we run the risk of any one regulator not appreciating risk developing or not understanding the risk that may impact other and ansel as the dishes for which that doesn't have direct responsibility so i think both the ability to designate the
institutions that need to be subject to additional regulation and establish capital standards, liquidity requirement other procedures for those institutions in conjunction u.s. the primary regulators, is a very impressive box stop. >> governor tarullo, this is a lightning round [laughter] >> senator, i think it depends a lot on how you structure things here and i guess one model which may be what sheila and mary are talking about, one model has the counsel basically as the rulemaking in today for a thing systemically important common designation of the tier one and capital rules i assumed deposit insurance to the degree of pride to the system as well or money-market fund regulation and then the question for you and everybody is going to be two what a system in which each major regulation and that has
the seventh importance as chairman schapiro said it something that will apply to regulation and duties of a other regulators, the you want that done it formally in a council by a vote of some sort or into wanted to be done through a lot of scrutiny, a lot of discussion perhaps bringing in sign outsiders as some people as well as, the agency is to ask the hard questions and require that agencies and that have responsibility for the regulation to defended and making a better regulation but then ultimately to nsl have the responsibility to implement and that is the joys and when i was alluding to in terms of the trade up. you get the incentives right to men thank you, senator reid. senator corker. >> thank you for your testimony.
chairman bair, very much as a per share outlook as it relates to the resolution issue and i'm surprised that the administration's proposal and wanting to continue to support companies that fail much like is being done with turban hope that will evolve but let me ask on the issue of systemic risk, if there had been a resolution which mechanism in place when that not have an eye to the even though there was risk in the market, with that not have actually reduce the risk to some degree -- and of the rich and you have the ability to deal with the lehman brothers or a i.t., would that add to the have reduced their risk of the system and the first place? >> i think it would have for two reasons. it already in place for some time and have had better market discipline across the system and seconds and the problems kids
and will always have cycles, always have cycles there would have been a consistent mechanism in place that could be applied to all these which would reduce market was sent to about who was meant to be next to no win and lose. so i absolutely think it would have reduced the going into this and we had such mechanisms. >> i think that is a big point and i think that is something that we're looking at creating something new. and i know we will debate that and may come up with the resolution of the plant is if we had an effective market disciplines in the first place with the rent and is used whenever tubing to tell the could avail the risk itself would have been less and i think that is important -- let me ask, i'm certain on several public company in torrance and surly not have the size of the companies we are talking about here, but i have been before a
lot of them in each of the board members if a plane a respected individuals that have a focus on the on companies and i respect people and the opposition very much, but is there something we should be thinking about as it relates to boris? they show up and really don't know squat about what is going on inside the company and it is a nice social event. it is just the way boris are set up and most ceo's like a ballet i was of serving on highly social boors,. [laughter] is a fact. let's face of the board members really as good as they are, the respected individuals may have their own companies and fish to fry in many cases, they really don't know what is happening inside these companies and the greatest regulation of and just be knowing that people on these
boards and ashland and assam is happening in the company. i know most ceo's don't like that much, but i wonder if he might respond both mary enzi lead to that, chairman and chairman to that. >> mary is just fine. [laughter] i think governance is an enormous issue and i don't think in this by now intention of neglect than some other institutions got into so much trouble but i think we have a serious examples of boris that are not paying close attention when didn't understand the business the company is than ever on the prospective there are a couple of things we want to do about that and one is we propose new rules require much greater disclosure in the process which will learn to sketch in quote about qualifications to serve on a particular board and a risk of a for compensation committee or other committee that might require particular expertise so
we can encourage parents to nominate people to sit on the boards who actually bring that value to the company. i think the second problem is with compensation to the extent compensation in some of these institutions have excess of risk taking and holding boards accountable through better disclosure of compensation schemes and the compensation programs and risk-taking i think will help shareholders to a better job of holding boards accountable for having utilized compensation. >> thank you. >> i think the direction of the sec is going is great and much needed. our on focuses regulating banks obviously and identify witnesses and management, we live to the board and want to make sure that have people who understand banking and over c management's but their primary responsibility is to make sure the management will run the bank in sound manner so we have put a focus on this and i believe the fed has
said the company level and we want real boards and people who experience what is going on in the company and other san derivative positions and how the compensation structures impact risk-taking behavior. >> and other question for any board member, the opera's question they ask the company is how much insurance you have a. i want to do was to be on this board but i don't want any liability and insurance isn't enough, i think that is something that we ought to consider as a move ahead again not without any disrespect to the individuals themselves. so i think in a resolution had been in place the risk would have been less. if we had the words that somehow had some mistake in the gone are some different relationship that would reduce risk so let me move back to the notion of senate regulator which i know we will
debate but what powers governor tarullo if company a it was engaging in buying one sign of a risk in a major way and intelligently, what would have the power of this summit regulator be two stop that action? >> well, again it depends on how congress would choose to define it systemic risk regulator. if you're asking about how the federal reserve padilla said they would depend, of course, on whether it was a supervisor institution on mass because it we have no authority over them. >> i am talking about -- forget all of those -- tell me at the end of the day did it systemic regulator the ability to do something if they saw something
that was creating a risk, what power would be given? and think we would all like to understand what they would do in that case. >> i think it is important to draw the distinction. right now if we have a supervisor institution there is a set of rules and supervisory expectations that there are rules on leverage and capital and on liquidity. there are supposedly conforming to those and if they are conforming to those there should be a contain it to the kind of risk you're talking about. the backup average is supervisory examination which goes beyond the rules and that works well and identifies these things and then allows the supervisor to give guidance to the firm to say we thank you ought to be moving away from this practice or to research and rest but i think your question raises and import point which is if this were let's assume the
administration's proposal on tier one at hd was enacted there would still be a substantial universe of firms out there which would not be regulated by the fed. which might be engaging in a kind apprentices' you weren't talking about even if no one firm is systemically important. in the african a practice and games in firms can create problems so you'd have to ask to be able to regulate that. >> i think that answer was really interesting mr. chairman from the standpoint, nothing -- the answer is nothing so the notion of having a single person, a single entity overseeing so they can and swiftly is not even relevant. because there would be no power and at the end is all conversation, looking scum of regulation and those things can be done by a group. i just think that is where the
of hearing one of the governor said. no action. >> senator, just to slightly maine to ann or what i said -- it is important to look to see what those rules are that puyallup. the roles of leverage, the rules on capital, the rules of liquidity are themselves supposed to be based upon a concept of risk and i believe they are based upon a concept of risk which should contain these risks. i think that if you sent the rules properly you have gotten a fair way down the line to containing risk within those institutions. what i was saying before about the backup supervisory examination authority is there can still be practices that a rise, that somehow are eating their roles were not falling and of the rules and then you need to determine whether it is an
unsafe and unsound practice and make the judgment about that, so i don't think anybody should promise to you that as soon as any firm stars doing anything dangerous that summing later is going to be able to stop it, it's going to have to evolve over time and if the rules are set right you should be contained a good bit of that to begin with. >> thank you very much, senator tester. >> thank you mr. chairman. all of you have talked about regulatory gaps and systemic risk and all of this. governor tarullo, one of the points he made was on accountability, you can diffuse the responsibility. later on you talk about silos and i don't want to put words in your mouth but you were opposed of one agency determine the solution to the problem and i may be wrong when i heard but
that is what i thought i heard. we are at a point where we know there are regulatory failures and i think there is an opportunity to fix what the president put forward with this proposal, but shouldn't be push for further consolidation to stop the gaps to allow ourselves to focus and have that accountability that you talked in one of your main points, mark consolidation fax. >> you keep referring to my prior job which i guess is a good than. a i spent a good bit of time attlee as an academic looking and the different ways in which countries such as the regulatory systems and there are some countries, the u.k. and japan
among them that have china fundamentally to consolidate of financial regulation in a single entity. in i don't think there is any denying there is some it manages to that and you do get some of the cross pollination and you do benazir incentives to the cost of the system but protect our example deposit insurance fund and you get a lot of those incentives. i think that people in those countries also said there are down sides to that as well how. the advent of the crisis in the u.k. suggested to lot of people that model was a failed state so i should say if the fed does not have a position on was consolidation but as kind of a policy observation i think there would be teens to trying to get more focus and consolidation so that you have some sense of who is accountable for what.
but i think most of us and i suspect all three of us at the table would also agree that some measure of adenosine is actually not a bad thing, that is sometimes i want accountability but sometimes it's not the worst thing in the world to have multiple pairs of eyes and even somewhat overlapping authority. >> i would agree with that but then when happens with instrument developed that has a regulation that falls in those gaps we talked about and then everybody says it was theirs. >> that is absolutely, i think that is a very good point and so the question for you will be in the architecture that you may choose to legislate the, you provided that summer there is going to be residual rafal the authority to address the anticipation. >> chairman bair, the
administration proposes leverage in the impacts and the impact is a failure would have run a line is a system and the economy when determining if a firm is systemically important. in this kind of aid to edge sword, once again, but if affirm size in the metrics are developed around not and we could talk about what those metrics might be and we might if we have time, but wouldn't that provided from a safety standpoint, wouldn't that provided competitive edge advantage for those bigger banks persists committee banks it, in fact, their size and leverage determine them to be they can't fail so we are going to make sure that they don't perambulations. >> we think any designation is systemic to be a bad thing not a good thing and if that occurred there should be the specialists
resolution regime. to resolve a lunch interconnected firms the same that applies to small banks and also should have to pay assessments to provide working capital and they have to be resolved. we are not sure you need a special tier one category, the assessment could be anyone who could be system based on other criteria. it could be used as a means of the forest cut to pay the investment but you're right, if you have any systemic discrimination without resolution of the money and we think assessments would be helpful as well. it is going to be viewed as a warning and reassurance and you want to end it. >> i am not tracking as a consumer how to stop it from being a reward and not a liability? ..
i will tell you what i said a few weeks back, maybe a couple weeks back i tend to favor the counsel -- the idea the federal reserve i think it's fraught with a lot of problems, so at least today that is where i am thinking. but discussion today has really raised i think in my mind at least some very important fundamental questions. it seems to me if you have a consul, chairman bair, i would tend to agree with you the consul what does it need who is classified as somebody who would fit within this. but that raises the issue of how broad is that power which probably brings back to even a more fundamental question of what are we meaning by systemic risk? is that an institution that is so in tangled with the overall economy that if they go down it
could literally shake the economy or bring the economy down, is that what we are thinking about? >> i think you are and i think it should be a high standard and i also believe through robust regulation higher standards proposed resolution mechanism as well as assessment mechanism they will provide disincentives for institutions to become that large and complex as opposed to now where the incentives are to become so big they can basically black melos because of a disorderly resolution and this is one of the things we lack is a lost government to provide a resolution on an orderly basis. it rewards them for being a large and complex. >> cylinder that analysis, very, very clearly you could have a large operation fall within that but you could also have a large insurance company fall within that. >> that's right.
>> he could have a large power generating company fall within that. but if i somehow have the wealth and capital access to start buying power generation and all of a sudden someday you kind of look up and i own a 60% of it? that's a huge risk to the economy if i go under power generation is at risk. is that what we are talking about? >> we are talking about financial intermediaries, and i think there are things in terms of the reliance on short-term liabilities to find themselves as well as the creditors and bar was dependent on them for also continuing, continuing credit flows. so there are things different about financial intermediaries that make it more difficult to go through the standard bankruptcy process which can be uncertain. can't plan for it. the government cannot plan for it, they cannot control the time and it can be protracted a and
take years and its focus on maximizing returns for creditors as opposed to the resolution mechanism which is designed on protecting insured depositors but also making sure there is a seamless transition so there are no interruptions for depositors and also for borrowers and for the process of the super grocery process polis legal authorities for resolution we are able to plan for these and you in advance and i would assume this would be the same situation you would have as senator reed pointed out the said virtually regulates everyone and that would be the case. i would also say that i really don't think a very large -- plaine futrell for cappoli in short i don't think they would be systemic. i felt aig got in trouble because it dpp could deviate from its property-casualty insurance and when it is a high risk activities. so again, a few penalized being systemic i think he will reinforce incentives to stick to
your knitting and more basic low-risk activities as opposed to getting into the higher risk of endeavour's that can create systemic risk as we have seen. >> chairman shapiro, do you agree with that? >> i do agree. i think if you have an adequate resolution of they will in fact be used. it can cancel out the competitive that faint that might be perceived to exist for an institution that is systemically important and therefore the government will let it fail. if people understand in the marketplace institutions will be unwound and permitted to fail than they shouldn't have that competitive advantage of too big to fail would give them. i also think a council will be much better equipped to make an expert judgment across the different types of financial institutions we have in this country about which ones are systemically significant and
important. >> governor, what is your thought? >> senator, i guess i basically agree that maybe with a couple of qualifications. i think the resolution mechanism is an important component of any program to address too big to fail. but as with each of the other components i don't think we should look at it as a panacea. this is not something we have done before. it's something we think needs to be done and i agree with senator corker's earlier observation if it had been in place before it would have reduced risk but he didn't say eliminate risk and eliminates the problem and i agree with that. i think you are going to need a good, sound resolution mechanism. i think you're going to need other mechanisms to enhance market discipline. referring to the capitol structure of the firm for example, and i think you are also going to need the sound
transparent regulations because i don't think that going forward we can rely on any one instrument. we are going to have to rely on a set instruments to try to contain this problem. >> my time is expired but if i could offer this thought. i think the chairman is absolutely right. i don't notice any political agenda. i don't think it is a partisan sort of thing we are trying to come to grips with. my hope is that as we start working through this and putting pen to paper that the administration will look at this from the standpoint there are a lot of ways of dealing with this problem and preventing what happened. and of wade walking down on just a single approach, like it's got to be the federal research or it can't be anything but having
said that, and i will reiterate. i'm hoping that at some point we can move beyond who manages this and resolve the dispute because there are some very important issues about who does this apply to? what are the unintended consequences of trying to define that? and i think that is where you get into where the rubber meets the road how you structure this in a way that makes sense that deals with the problem without going off on a cul-de-sac that really is not where we want to be today. >> let me just say and i appreciate my friends and colleagues comments because he is on track and my sense is with the administration as well this is dynamic setting up ideas and proposals and that is as they should do i suspect, but my sense of it as well is i don't get a lockdown view on this.
so i think we are still in the dynamic process thinking through these ideas and you are absolutely correct, we are spending a lot of time on the who. bob corker i think raised an important question i raised many times not just the who but what, what powers? identifying who is going to be an important question but what power are you going to give them is equally important if you're going to give any power at all. so i think there's a lot of important issues and again i am very optimistic about the process we have in place for archiving and some of these answers sali thank my colleague very much. senator bennett of colorado. >> thank you mr. chairman. i want to pick up right where you left off and senator johanns left off because i think this is by the way a fascinating conversation and i appreciate all of you being here today. i think this is fraught with incredible amounts of in and intended consequences and we
need to be enormously careful keeping our mind or focus on what is the problem we are trying to solve because i am enormously skeptical of our ability to predict the regulatory agency's ability to predict these economic cycles and then to be able to respond in a way that actually dustin to compound the problem we are facing. i think we have just seen 20 years off leverage piling up on the system and lack of intention to that that has led to the destruction of, you know, our economy and the dreams of a lot of people that live in my state and other states. but i fully agree that we need to -- having read resolution authority in place would have made a difference and kept us out of the alice-in-wonderland world where we are now having conversations about how people
get paid and private institutions where the taxpayers had to come to the rescue of the firms we should never have had to rescue and the fed chairman and treasury secretary have been doing good work trying to get us out of here and they are right to say that we were left with an assortment of terrible choices, and we took the least bad. our objective needs to be to make sure we never find ourselves in that place again, and i guess the question i have for you, chairman bair, is when you talk about the counsel -- and again i don't have anything against the council or anything and it might help, we talk about a council that anticipates risked life and i get that little skeptical but i get it. you also talked about the council that mitigates risks. can you tell more about what that means, put some flesh on those bones?
>> litigator reduced risk. we are a capitalist system so there has to be some risk in return. that is excessive risk perhaps should be a better example. in terms of the systemic risk council i would put at the top of my list and their capital margin and other constraints on leverage. there was too much leverage built upon the system, and i would say that we would believe this council should have the authority to set minimum standards, as to the coast of the council decides they are not sitting up high enough capital standards for the bank or if the fed isn't setting a high enough standards for its holding companies or for the quality of capital the council could step in and raise those standards. so i think there are checks and balances as well that you may not get with investing the power in one entity. >> that's an interesting idea and would effect of that be to remove some of the risk of regulatory capture of the other
agencies? >> i think that's exactly right. >> a question for the panel, generally, one thing we've learned in this economic crisis is that the united states economy is not isolated from the rest of the world. as we think about this set of new with laws and regulations, how should we think about how we connect to the rest of the world or the regulators connect to the regulators across the globe? >> well, i think we should lead the world. it could be a very long time based on my limited experience with some of these international groups. and i think especially on resolution of 40 they are using the united states to define a model and i think you should seize the moment and forge ahead and not follow because i do think there are still a lot of folks looking to us for leadership and we can define what the ultimate standards will be. >> mr. chairman and i will end by saying i hope whatever it is we are right out and whatever we
do the administration leads towards a by is that when firms need to feel they fail and we can make sure we do that in an orderly way and that we are not ever again in the circumstance today which is to prop up institutions simply because we had no other choice. this is a shame the tax payers have found themselves where we are. thank you mr. chairman. >> thank you. i couldn't agree more by the planes made by several and the option is one, to pour billions in order to collapse them. there has to be alternatives within the two bookends to get far more flexibility to respond to the situations and if we don't do anything else i think the wreck resolution mechanism is going to be important to this and again as i listen as the chair of this committee my job is to listen to all of my colleagues, and as i listen to this while we haven't settled on a process now i am certainly
beginning to sense a consensus developing around those issues sali thank my colleagues and senator bennett for raising that issue. senator bunning. >> thank you. i would like unanimous consent to enter my opening statement into the record. >> chairman bair i've asked you this question before and probably will ask you again. when do you expect to and the temporary liquidity guarantee program? >> october 31st. >> for sure? >> for sure. [laughter] yes, all indications we will be able to exit the program. the balance guaranty balances are down. use of the program is down significantly and i anticipate we will be in a good position to exit october 31st. >> good. this is for all the witnesses. so, this question has two parts. as i said before i doubt we can accretive regulator that will be able to see and stop system
eckert ask. so the first question for each of you is if you really think government can assemble a regulator that will not be all smart by wall street first of all, in other words can the government really understand what the financial industry is doing and spot the risk ahead of time or at least as they are happening? and second, it seems to me a more practical and effective way to limit the damage firms can do is to limit their size and exposure to other firms in other words the interaction between major firms. that also has a benefit of allowing the free markets to operate but within reasonable limits. my question for each of you is do you agree with that and
answer also the first one if he will. you can all take a shot at it. and no order. [laughter] >> i think, look, we can have better quality regulation. we can have more even regulation but even regulation will never correct all of this. you need market discipline which is why we have an effective resolution mechanism the market will understand if these institutions get into trouble those who invest them or extend credit are going to take losses. on the interconnectedness' and exposures, yes, senator i think you are correct to focus on that. one thing we suggest in the testimony that would be up for consideration for council if it was formed would be to look at whether there should be some limits on firm's reliance on short-term liabilities. >> shouldn't we include everything in other words we are talking about things that are not regulated at all and
subcommittee chairman reed and myself are having hearings on those things outside the regulatory body right now. >> i think you're right. the relationships of the financial intermediaries to others in the economy stress to those on the market wide basis i think are all things that require a lot of interagency cooperation and something the council would be well equipped to provide. you're absolutely right interconnected this is a key indicator of systemic risk and it's something i think we can do a better job through regulation and containing. >> ms. shapiro? >> senator i think we can do better as regulators. we will never do be perfect but -- >> we all know that. >> i feel we can constrain risk-taking through capital requirements more effective capital requirements and margin but i want to address the second question because i think it is a particularly important in the
context of the example of the over-the-counter derivatives which trade in the hundreds of trillions of dollars on a bilateral counterparty to counterparty basis without transparency, without in many instances sufficient margin or collateral -- >> the just trade. >> exactly. so the goal of moving as many of those transactions on two central clearing platforms so that we take out the counterparty risk and remove the bilateral nature of the contracts of clearinghouses between all the parties i think would do an enormous amount to reduce the systemic risk and reduce the exposure for financial institutions to each other. >> just by registering? >> by clearing them through a central clearing house. >> with respect to the first part of the question i would agree and go further. i think part of what we have observed is not only that the government observers can't figure out every instance of systemic risk but market participants themselves are
sometimes unaware of the fact they are engaging in practices that are subject to the domino effect of everything falling down. i don't think that means we should give up. i think it means we have to go into the exercise with a realistic sense when you can and cannot accomplish, and you're going to have false positives and false negatives which means that there needs to be a certain modesty associated with the exercise. but i do think with efforts to quantify how to get data into a standardized form where you see the amount of leverage building up in different parts of the economy that you can take some steps down the road were interconnectedness point i think is critical. that's why we suggested in the prepared remarks were testimony that i had that in thinking about capital regulation for larger firms one should try to devise a metric that looks at
interconnectedness that looks at the very things that create a system eckert risk rather than just replicate the silo approach to capital regulation. >> let me get my last question. this is for sheila. all the largest institutions, financial institutions international ties or at least most of them and money can flow across borders very easily. aig is probably the best known example health problems can cross borders. how do you deal with the risk created in the country by actions somewhere else as well as and pact factions on the u.s. markets themselves? >> well, i think the international component of this is very difficult and as i said earlier i think we should try to lead and set the standards which we can then try to leverage into international agreements
especially in these institutions get into trouble. the fdic co-chairs a working group to address just the situation where a u.s. firm with large international operations gets into trouble or vice versa. one advantage we have in the united states is we require banks to be chartered here organized under our law and insurance separately and regulated as if there were domiciled here so if there was relation for those entities if they get into trouble. we do not require the opposite, banks and financial institutions must be organized separately so we suggest in the written testimony that might be something to think about what greater legal autonomy and organization with each of those jurisdictions if the entity does get into trouble it makes the resolution a lot simpler. >> thank you very much, mr. chairman. >> senator brown. >> i want to follow -- thank you
each of you for your public service during very trying difficult times. i want to follow on chairman dodd's given to the systemic regulator. i was intrigued by center bombings statement that we don't want to be all started by wall street and that we in the senate not be outsmarted by wall street by u.s. regulators not being in the structure we built be outsmarted by wall street and i think you can sort of a longer time you spent watching whether it's the financial system or health care system history is replete with industry always trying to in some sense not accusing of illegality but some sense staying ahead of the share of that they are always trying to find a way around whatever rules we've right rudder it is health insurance companies gaming the system and we try to write rules for them or whether it is financially institutions or anything else in the whole
regulatory systems and structure that we've built. i ask you, i start with mr. tarullo but as all of you give me a per prescriptive walk through of what in fact we are able to do with the system xb6 what kind of power the system eckert risk regulators should have to prevent another mortgage meltdown, what a specific issue can walking through for us and and very understandable terms about what kind of power the systemic risk regulator has to prevent those kind of market meltdowns if you would. >> senator, again, i just want to qualify the notion of systemic risk regulator because again it depends how many of those powers you invest in a particular agency. i would say that getting to senator dodd's perspective where the power was all to be i think you are going to need to have
simple but straightforward strong rules for precisely the reason you said, that if you try to go to activity specific you are going to always have people arbitraged and trying to do something that accomplishes the same end so one has to look to overarching rules that provide some constraint so i say that's number one. number two, i think you do have to have an adaptable set of regulators and supervisors who are looking at emerging practices and are able and have the backup authority to act against those practices. number three, and i guess i would say on the consumer protection arena, i think that most importantly of all you probably need a change in attitude. because i think as again and academic teaching through 2000's
i didn't see an enormous amount of interest and financial service consumer protection frankly at any of the financial regulatory agencies. there was as senator dodd we set out to take action. there was certainly examination of the word each of the agencies had things they could have done. perhaps not everything. couldn't have stopped some things but could have stopped a lot so i do think on the consumer protection area the basic problem is one of attitude orientation and leadership. >> i want to hear from the two chairs, too but would you in writing discuss with me because i want to get to what you mean by changing attitude and more importantly how we get there. send me a letter about that. >> i'd be happy to. >> chairwoman shapiro.
>> i agree is a challenge for regulators to keep up with financial innovation. and the latest trading practices and design from wall street. i say from some extendable st outsmarted itself the last couple of years and not just the regulators which is why through a lack of good risk-management procedures and lack of understanding entirely the nature of the businesses they were engaged in or the degree to which they were dependent upon counterparties is significant contributors to the situation. i think there are a few things we can and must do. we've got to being unregulated products under the umbrella and i've already talked about otc derivatives and i won't go back through that but it is a very significant gap. i think we have to be much more robust about capital requirements and procedures within the firms and have regulators who are willing to be skeptical every single day and every hour of every day about
the quality of risk-management procedures in the firms that we are all responsible for regulating. i think we need an across-the-board commitment to more robust stress testing so that we are thinking more about the huge impact but low probability events and factoring that and how we go forward with the regulatory programs and to refer back to something we said with senator corker i think we need to find ways to encourage more engaged knowledgeable boards in these financial institutions. >> chairman bair. >> i would say going specifically focusing on the resolution mechanism regime we said just going forward that the wall street firm couldn't come and ask for assistance in the government without submitting to a resolution procedure meaning they would be closed effectively so i think they will stop asking number one if that is the trade-off. we do think -- i do agree there has been balkanization of regulatory responsibility and that is why we think a council with ownership and statutory
manager mandate to be responsible for the system and addressed systemic risk getting ahead of systemic risk and change that attitude and get us working together as opposed to it's not my responsibility, that this agency over there. i do think the responsibility of the council to set minimal standards will be a check against regulatory capture, or perhaps waxed attitude so that is another feature that could create more robust regulatory environment. >> thank you. thank you, mr. chairman. >> thank you, senator. >> senator crapo. >> thank you, chairman. and chairman bair i'm going to focus most of my questions on you although i may have time to get to others on the issue. i'm going to focus on the resolution of 40 again. i know that you have proposed the resolution of 40 be with the fdic and be expanded to bankholding companies. there is a bit of a discussion as to how broadly it should be
expanded and where this authority should resolve or be placed. but when you look at the issue for resolution authority we have first of all the fact that right now we only have resolution authority for banks. and you have indicated that we should expand that to bankholding companies and we also have a, a piece of the issue senator bunning raised with regard to international holdings and what we deal with when we have american institutions that have acquired sometimes dozens if not hundreds of foreign subsidiaries and how we deal with those kind of jurisdictional issues and i would be curious as to your thoughts about where should the resolution of 40 be placed? i think i know the answer to that. but also, how broad do we need to be in terms of the establishment of such resolution
liquidation plan they need to update on a quarterly basis and this should also be facilitated by handling greater legal separateness, and the functional components and part of the problem is these things are intertwined. they may be finding assets to the united states in trying to tease the that out in an orderly fashion is difficult so we think there is the infrastructure that is to be put in place here. i also think by designating someone, some entity as a resolution of the idea would facilitate international discussions. we are doing that now but we just have the bank piece of it and i think it is us or someone else to have the divine authority that would be the entity that could negotiate agreements with other jurisdictions that have systems and agreements in place for you to get a situation where an organization gets into trouble and we would have protocol some place. >> what extension of the authority at fdic to include bank holding companies have allowed to to reach to lehman brothers and aig?
>> well, yes erratically it could have -- aig, in assuming that it's both banks collapsed in the fed has become a bank holding company as it was a. >> where would we stop -- i guess is expansion the bank holding companies of mission? i'm thinking we have an insurance companies, hedge funds, private equity firms, mutual funds, pension funds. how broadly do we need to reach? >> again, we would not want the fdic to decide that, that is something the systemic risk council would be best equipped to do and also are not the ones to decide to close the entity and i could be done stairways. one would be to the systemic risk process we have now been holding company by the fed as the primary regulator and that's the way the process works.
the primary regulator makes the decision to close institution frequently done in consultation but appoints us as receiver. >> the you think it would be adequate to simply extend jurisdiction to bank holding company's? >> if you wanted to do something quickly and as i've said before i am concerned we are not out of the woods yet and as the market starts to differentiate in these government programs we may be back in the soup. i hope that's not the case but not sure. i think as an interim measure you could easily extend our authority to bankrolling companies. you don't need to do that in a systemic risk or anything else. i think when you do that down the road by yes of the short-term measure and i think we have out drafted language which would be simpler amendment process but that would be a very good tool to have now. >> and i assume and that he would agree that establishing an expanded resolution of a lenny would help us to get away from
the concern that creating a systemic risk regulator for those so-called it too large to fail firms would create an implicit government guarantee that they would be propped up as opposed -- >> that's right so we want to be a bad thing that a good thing to be systemic, that's right and i thank you do that through a robust resolution regime that mesa could to the market this is the process used and shareholders will take losses. >> thank you, i would love to have had the same question answered by our other two witnesses. maybe be able to get some of those. two have the other two witnesses comment on that? >> a really agree with what sheila has said it and very supportive of that and the only slight amendment that would have that would be for a bang: company's were customer camps are protected under sec law that there be consultation in the process with the sec i will
expect there would be. >> senator, a couple of comments here. one, i would hope that in the universe would naturally not expand that greatly. that is as with comment before, chapter 11 is an appropriate route for most entity's financial and nonfinancial. this ought to be a somewhat discreet mechanism which is used only in a really unusual circumstances. >> thank you. in that context i tend to agree with that as well but if we do keep this narrowly focused on as narrow as we are talking, then i think we really need to raise the question of the implicit government guarantee of the firms regulated by the systemic risk regulator or the system we established. >> and center with respect to bank holding companies you don't have to beat the question because there's no need to distinguish between systemically important and on systemically important, it's only when you
get to the entity is not currently supervised the two have that issue. >> right. >> thank you very much. senator mark gulley. >> thank you larry much mr. chairman and one of the components of the president's plan is a the consumer protection agency, there hasn't been a lot of discussion of that this money so chairman bair can you give us your insights on the role of this potential institutions and whether it is a program to create? >> we support the agency creation and we think that an agency that is focused solely on consumer protection and financial services to apply standards across the board for banks and nonbanks and mention the same standards, we think that would help the banking sector because i think one of the things that drove the rapid decline in mortgage origination sanders was it got started outside the banking sector and most of these high risk margins were outside the traditional banking sector but it is back in as competitive pressure to
market share of banks and thrifts and lower their standards in kind. i think making sure they're even standards across the board is important. roy think the proposal could be strengthened is an horsemen focus. we think we have strongly recommended examination enforcement component burbanks be left with the bank regulators and i said that as a bank regulator but also an insurer of all institutions with taxpayer exposure without insurance guaranty. there is a reason why we focus on potential regulation of banks and a lot of it is because of the fdic insurance which is back there taxpayer backstop and there are important synergies you can get between prudential and consumer and supervisions. we typically cross train our examiners. we have teams in consumer examiners with mortgages is a prime example of where abusive of mortgages to consumers were also unsafe and unsound and
frequently we will find with the consumer price -- compliance problems that have any one of the problem with is management and institutions with a strongly that the rule writing should be for banks and nonbanks and we're on without examination enforcement mechanism should focus outside the banking sector where you don't have much examination enforcement activity at all with a mortgage broker soren pay lenders there are a lot of abuses outside the banking system that we think could and should be addressed by this agency but we think there crocus to be on creating more robust enforcement mechanisms for the non big center. i don't understand and why taking on examiners from the bank regulators and putting in this new agency and making responsible for banks and nonbanks is going to work -- i don't think it will hear it would be highly disruptive to the fdic and that is 25 percent of my examiners pulled on of the fdic and i assume it's a similar percentage for the other
regulators. now we think we do a good job on examination and enforcement. we've never had the ability to write rules so that doesn't change things for us away when asked to consider that change in the administration proposal but we do support the agency. >> someone related to the systemic risk conversation partly about institutions and parlay about practices. by practices i mentioned things such as prepayment met penalties of mortgages, regulatory arbitrage, whether a fundamental conflict of interest in the rating system in witney into the rating is paying for that rating and the issue of the amounts of leverage that are established in the system under supervision of a sec para had is on this side when you have a consumer issue that would be driven by the consumer and into protection agency. when is it an issue that is systemic risk regulators would
take on? and when would be an issue that the regular bank regulators say gone and how would get worked out in terms of how to proceed? >> well, i think it does go both ways and what we have suggested in my written testimony we think bank regulators should be represented on the board of the new consumer agency. i again and supervise a rethink the fdic would have been a perspective that should be represented and be happy to have a hazard on our part because there are synergies and interconnectedness between the safety and soundness. it i think those need to be dealt with in that would be one way to deal of them. i should say though there has opened a separation between world writing an examination and horsemen with the consumer loss of these for banks. the fed has had that authority for federally insured banks. the fdic has never had the ability to write rules, it does have the enforcement component. >> i want one last question, paul volcker had a report that
came out january that i think was called of the group of other airports that addressed the issue of proprietary trading by banks and essentially a using the capital assets of the bank should banks really engage in purchasing assets regardless of the risk and does that trade systemic risk? they have recommendations for constraints on proprietary trading. i open it up to all three of you -- do you have thoughts about this, it hasn't got a lot of attention and i'm curious of rethinking. >> well, it probably doesn't surprise you we would strongly prefer the proprietary trading occurred outside the bank and an affiliate and if it does occur in a bank holding company that includes depository institution. we think that is a risk i feared the should be considered if the congress decides to approve a the system for a larger institution. >> i would add that i think proprietary trading with either type spears money in the event of supported institution or a
customer's money does absolutely create unrest and we need to be sensitive on the broker-dealer side and not permitted to proprietary trade with customer and funds in that activity taken up by the broker-dealer. >> senator, i would just say that regardless of where these activities are taking place they can create a risk under some circumstances, there need to be capital liquidity and other kinds of regulations which contain the risk in a matter where it takes place. >> thank you very much. senator bennett. >> thank you mr. chairman, i appreciated and thank you to your witnesses eric and i think we've covered most of the ground and don't necessarily need to reread bent same set of leaves. but i have an overall concern here and i don't expect the specific answer.
i just want to raise it and get some conversation. now systemic risk, what is it? if we don't have a definition of systemic risk that everybody can understand and buy into, we are getting into a messy situation that could end up being just as bad as what we have just come to repair and i listened to all of this and think okay, if i were the ceo of one of these companies and it sheila, you're saying we want to stigmatize the company, if it becomes too big to fail are shown as systemic risk, the first thing i would say to all of my staff would be fine now and what will cause us to cross the threshold of being stigmatized as a tier one too big to fail and make sure we manage our business in such a way is to avoid that.
now, if the definition of systemic risk is sufficiently lives we can find ways around the definition become too big to fail without being defined as too big to fail and end up with a board of or the single regulator whoever it is facing the mess that we have talked about. is the definition is clear and accurate and then there vashon on the part of the ceos would be we want to avoid being stigmatized and the whole thing will be self policing. so the market will react to that definition by saying we will do this, we will do that in the other thing. so who gets to decide what is too big to fail? who gets to define what is systemic risk? and what should we be looking for as we do that blacks.
>> i guess one last -- i have tried to probe into the lehman brothers decision because with the benefit of hindsight i think the lehman brothers decision is probably what triggered the mess that got us into the need for tarpon. in digging down through and i am told ultimately we did not have enough data. when we made the lehman brothers decision that said, yes, we will allow leamond to go down we didn't have enough data and if we had had more we probably would have meant a different decision and would have stepped in to try to save lehman the way we saved paris terms of that -- a real-life example of what happens when you don't have a clear definition of what is too big to fail. comments? >> senator, i thank you raise you're really a critical point here and i think it is one reason i believe a sissons of the council will be so important
because making a determination about what is a system of import institution and how its business practices are evolving over time to move in and out of that definition is something a council of a verse perspectives and expertise on different institutions will be well suited to do based on analysis of data, examination report, information and counterparties and so forth and so i think for us to be able -- we can come up with a definition, institution whose failure puts at risk other institutions of a financial system as a whole but i don't think it tells us very much because it is intact some general so i think a council will actually have the ability and have to do the incredibly dynamic process and that is i think designating that is a mistake because you will be designated and people will shop at their business to fall under the designation but i think for
the primary regulators and the council to understand those institutions that we need to be particularly august on will be important and facilitated by a council. >> i am glad that she referred earlier about a dollar threshold. might be the trigger and efficiency threshold might be the trigger and interconnected threshold might be the trigger. there is no single triggered this has come down too. >> i think your question is going to have importance regardless of whether it is a counsel, the fed, a new agency are some the also the question you put your finger on matters the matter who the designator is. and here is the basic dilemma that you always. as i said a moment ago, with respect to arnie supervise institutions and bank holding companies, you don't have to draw that sharp line in the sand and. you can have an approach to
regulation and supervision which is in a sense graduated. in squeezing more tightly as if there is more interconnectedness but there is no one place where you say this. the problem comes with institutions that are currently outside the perimeter of regulation and there the choices i think are several, basically rejoices -- choice one is you basically say here are other group of institutions which we think under stressed conditions would pose a systemic risk because of the set of criteria. two, here is a set of institutions which we would ensue if that level of assurance, but it is to be in the ballpark of thinking about them. either of those required to draw a line somewhere. the third option, of course, is basically every financial firm matter what it calls itself has to be subject to basic rules and
regulations, but that, of course, is itself a change from our current circumstance because we don't have that kind of perlmutter. i don't think any of those is a clean joyce. there are disadvantages and it manages to each and that is why i think the question you raise is one we will have to address as best we can no matter which road people choose to go too. >> i think we're suggesting there is a resolution of any bankrolling company sold for resolution purposes would not guarantee it up front and whether it was used was a determination made by the primary supervisor about whether to avoid systemic ramifications from a normal bankruptcy process that should be put into this special resolution process which still has the same claims priority, the bankruptcy has unsecured it shareholders take a loss. before the government. but it is a way that we can plan and that we have additional power set up bridge banks to accept repudiate contracts and
go to the list of special powers but they were better refine intermediaries but you don't have to make that determination in advance. in the context of whether assessment tool on the resolution funding and my senses it would determine who is not systemic as opposed to who is maybe anybody below number 25 billion you can safely assume they're not systemic so now become in the assessment and even those caught would be risk-based so if you are plain vanilla regional bank and take deposits and don't do much else you probably won't have much of an assessment and if you are a complex with proprietary trading and etc. you will probably have a higher assessments. as dan said the only time i think you're we need to do in it vances if there was a large systemically institution that is not already under the selling in the supervision and i think the council should have the flexibility and authority to
define this institution and bring them and a potential supervision if that is the case. but i think that is something the council should do and would be tremendous power and would benefit from a multiplicity of views on the council. >> the power to define becomes alternately the power that controls everything. >> and chile in terms of institutions especially, there are only a few institutions and i will name specific that come to mind that when our baby under federal provincial supervision, so i'm not sure actually that piece of goods and prices would be that profound and. as a result of the crisis everybody has become a bank holding company are on their way to doing so so i am not sure in practical terms that would be that you to the change. >> yankees mr. chairman. >> i like to thank the panel for hanging in and has done a tremendous time, the last two on this and have a second panel so
i have a slew of questions and try to as quickly and again solicitor martinez can get his cousin in and respect the second panel and we have tried to answer fairly quickly. i strongly made clear and believe that counsel is the right approach. i guess i would ask rather quick responses here. if possible even yes or no. i would love to show that counts: be appointed presidential appointment with congressional improvement chair should have the ability to look across all financial markets, should be able to be the aggregate of data from all of the provincial regulators have to with an independence that i could aggregate and assess the data appearing to has as i think i am producing have the power to issue rules require an enhanced leverage or capital rules. and shouldn't be able to force the fed did today provincial
regulators to take action and not have backup authority to take action so i want to try to -- i think senator bennett asked opprobrious questions about how to define and am trying to get into a high-rise structure with his counsel approach. recognizing governor tarullo may not confer on this king and sure, i talked about -- the board at this juncture as if someone were contained in view of the council so that me just say i will take that and slip back into the prior role which is to say that i thank you need to ask yourself what some point whether you are now basically creating a new agency that has brought in all the functions of the other agencies. if you have a council that basically is able to direct everybody to do with the council of things you ought to do it's not that far from the financial services authority mechanism in the u.k. or something like that.
obviously there are a lot of great nations along the way. >> thank you. in chairman bair. >> i thank you asked five questions and i think i have five, yes to all of them. i haven't thought carefully through the structure in terms of presidential appointee consume -- confirmed but it does need to have the ability to aggregate data to look across financial markets and all institutions is the whole purpose here added to my way of thinking. and i believe very strongly the power to set capital requirements and leverage limit limitations then credential regulatory requirements. and i would have one caveat on the ability to force them to take action if they don't do that in my view on that would be to raise standards yes, not to lower standards. >> chairman bair. >> i would say, yes. >> one of the things that senator corker has brought before you all in number of times and i agree is the notion
of an enhanced resolution authority with the fdic and the bank holding companies, i concur with his approach in our goal ought to be allowing these institutions to actually fill in an orderly process and not be simply propped up as 9m. there is a lot of question beyond that and in interim basis here, but one of the concerns with the administration's proposal is there is still that's how you and the resolution? there is still the idea of having to go to the treasury to get this retroactive finding of the resolution and clearly you don't want to have a pre done so much of existing small banks. how have you thought about a pre funding mechanism and how we make sure that the pre funding if you do agree with the refunding is a large enough now that you will catch potentially some of these institutions that may not be obviously a falling
into the current fdic coverage area? >> well, i think we support a brief and a mechanism and it is important to note that this fund would be for working capital. this is not an insurance program so we would be gearing teeing liability and this would be for working capital to facilitate resolutions when necessary to make sure there is no disruption to the system. at an issue would take time to build that up so initially might have to establish a line of credit with the treasury department. this should be completely separate from the deposit insurance and depository institutions resolving the bank calling company with both banks and non-bank functions we would allocate losses to read in a way that would keep them completely separate. similarly those with large to was the bases should be double assessed so that will take care of the bank and anything else outside the bank.
i do think refining is a born from the perspective that not only make you share there is something to call upon so you don't need to borrow from taxpayers to one of the resolutions but i think it is a tool that can complement prudential supervision that a dozen have high-risk be repaired and we have risk-based assessment for deposit insurance and set of cornyn 2006. we like some of the impact his hat on behavior and i think the assessment produces the same type of thing so for instance if you didn't want to -- so extreme as to shareholding companies maybe you say we can do until the above charge and higher assessment. i think it has a way to impact behavior but not in the way you have a hard it limits in unintended consequences. >> senator, and there is another one of the areas where you have downsizes well as upsize which are weighed go so the downside
in an exposed funding hasn't been suggested, you have to go back and do an assessment expo and more money from the treasury in the interim, i simply hope not delano reserve said the of this mechanism. but if you go to the pre running around, there is not really much experience to know what your pre funding as she law party said, you're probably not going to be at a problem in the near future where you have what you would need if you need a backup line of authority. i guess the incentive question with a single question would have to be asked, if you are a have a preset pot of money which is reserved for resolution situations, does that make it more likely it will be used? i don't think there is a clear answer to that either. >> i'm going to make one quick comment because i don't want to interfere with senator martinez time, but as we think about
these gradations and as we think size i hope there will be scaling as opposed to a simple line that you cross over. the one question i also want ask for your answer on but as we look at bank holding companies taking on a whole series of additional luncheons that oftentimes look a lot like hedge funds functions as you mention it chairman bair in terms of internal training functions, should there be additional capital requirements for these nonbank the functions that are taking place inside bank holding companies as we look at putting barriers on the two big to fail in size and also sometimes a series of additional luncheon's? i will move now to senator matisse and. >> thank you, appreciated. i believe a lot has been covered and i don't want to go over ground covered with there is one area we haven't talked about and i like to know the views of all three of you with the tse's. there entity is that i thank you
find too big to fail and that also were systemically very risky, however, they had this implied a government guarantee that they continue to enjoy your and obviously we have done a great deal to do what we should have done it much earlier which is put a regulatory scheme in place that might prevent some of the problems in the past, but capitalized kevin huge and ever-growing market share which continues to this day and implied government guarantee which provided investors a buffer from reality or from the consequences of investments. i think the whole ball of wax or mortgage system became very much trouble as a result of their activities and actions. and i cannot, i think we will look back on this time and what we have been too i think it would be impossible to overestimate the impact they've had and the problems we have
seen. how did they fit into what we are talking about here? what is the appropriate place for them to fit? is there a future they even should have a government sponsored enterprises or should they be simply part of the private sector? as i looked at each of your functions they all under chairman schapiro but not a lot exactly, so we are still in the problem. if we look at what is where we got today a love for us to focus on what got us here rather than just -- obviously a ideas a big part of the problem and obviously a lot of other issues and relationships and interconnectedness and all of that, but would you please address gsc's from a. >> center, the guarantee is no longer complicit. [laughter] >> someone say never was. >> there is considerable force to that as a well. the board as you know long
before my arrival there had expressed concerns about the gsc's and i don't think anything has happened in the last 10 months would have reduced to those concerns. i guess i would just say that telling word and again there are in number of ways one can go but going for what would be critical is to distinguish a private role from a public role. if there is a real public role played by gsc's and that is why they were originally started, but when you're going to have a public role that is when guarantees, implicit or an explicit are going to be involved and that is when trying to implement a set of policies of those activities are going to have to be constrained and you are going to have to make sure that the entity is really functioning as a public entity under a certain obvious that have constraints. buy characterization of some of the gsc's over the last 10 years would be that nobody could tell
where the public ended and the private began. >> what i would just end and that the fed there was an early sound of a risk and treasury especially when i was in treasury similarly would try to sound the alarm,. >> i will speak up for a judy. >> absolutely, i think this council would be able to give voice to the concerns and real authority to adjust, so i think that is one of the villages of the council and i think the administration proposed putting at age eight on the council and to consider with the gsc's adel of the future is but of congress and continue in and really are still with tremendous systemic exposure so i think this would be a primary where in the past to have had a mechanism to pour some real action to the council and going for and if they continue to lunch in this way the regulators should be represented as well. >> i don't have much to add a levy stand up for sec, long
before i arrived with the push for public reporting i think dan makes a good point about establishing the public and private role and the intended consequences of having public policy. the mission is to be transparent and well and is heated by the marketplace. >> i think the market, when you put the paper in the market and people in west, i don't know how bad is a republic role. i know of you have a board of directors beholden to the investors or the public role and that is my trouble of the whole idea of the gsc's charters. and i for one would wonder noir how their future should really be and whether, in fact, they still have a role that this has been in the past version we dramatically alter it going gordon. thank you for your input and being here this morning. to make senator menendez. >> thank you mr. chairman and thank you for your testimony. for those of us struggling to define the boundaries of systemic risk are which is said that one of the key questions and i know you have been asked
some of these and given answers, but to me it is more complicated than just the size of a firm or what businesses and, but how significant is activities are. as well as how extensive the relationships are with other firms and consumers so we have used tear out into big to fail and sometimes i wonder whether we should be looking into interconnected to avail. in that respect, you know, should for example, the extensive relationships with small businesses and consumers can to defining systemic risk by way of example c19. see id is the largest lender to small businesses in america, and has been in financial difficulties. it seems to mean that unless an entity like i can find its way out of his financial difficulties we are talking
about hundreds of thousands of small businesses across the nation who won't have the type of financing they need to conduct their activities which is the greatest creator of jobs in the country at a time unless the country is desperately in need of jobs, so how do we look for example at that? is that an element of systemic risk? it is then the line for me a little bit better initiatives and tell me why it is not. >> i will start, and i don't think any of us probably was to be speaking with reference to any particular entity so let me just try to speak in more abstract terms. i think we do need to drive distinction between entities that are economically significant with an entity is that a system of financial risk. there are many entities in this country whose failure would work very adverse economic consequences on a lot of people who deal with them, a lot of
employees and communities, suppliers and the like, but which don't create a system of financial risk in this sense that they're a failure leads to a kind of immediate cascading a fact in a way to leverage that is consecutively held by a lot of institutions that have a counterpart relationships with one another suddenly becomes a problem as asset values deteriorated and margin calls increase you have to put up more collateral and sell assets because you don't have enough collateral to put up. that is a pattern that we saw with. and leamond in aig and, in fact, to go 11 years and said that as the long term capital management. >> cascading of thousands of businesses that would have assets wouldn't be systemic risk? >> it would be a severe economic problem, but in the reason i say wouldn't be a systemic financial
risk is that it does not unwind essentially overnight killing the animal beall industry would fall and the same context? >> the judgment on the automobile industry was there were a truly enormous costs particularly in a situation in which the economy lewis headed down so quickly in and i gather that is why the administration and many members of congress thought that action and should be taken. but that did not pose a systemic financial risk. even though it did impose substantial financial hardship. i don't think any of us wants to tell you that an approach to systemic risks will either prevent or mitigate or an economic problems. >> let me take a different tack on matt. so we are looking and its three
or $4 trillion commercial mortgage problem coming down the pike in a marketplace with that at this point in time i am told that entities across the country there is no largely speaking in the private sector, there is and the wherewithal for that market to take his mortgages that will be rolling over and having looked at our lack of action on the home ownership side and what happened there. is that something with that we think it poses systemic risk or do you put it on your same category. and make trade enormous economic consequences but does not have financial risk although i would say that of all those people the false and cannot find a mortgage in the marketplace those institutions will be holding a large number nab back up by some degree of security of the properties will have large
numbers of the false unless under a marketplace that has reduced in value and less than holding presently requires so what is that? >> i think it depends on where the concentration is to be done and what the impact of the value of institution holding any formal of exposure would be. let me just say with respect to commercial real estate. i agree with your assessment that is a looming problem, it is a looming problem for communities in the economic performance generally, a looming problem for financial institutions in this country. whether or not, i don't know that one can classified in and of itself as being the systemic risk or not, it is surely an issue and a problem which is what i think all the bank supervisors have been paying attention to the exposures and speaking only for the fed why we did extend the town of program
to commercial mortgages because of the absence of credit flows in the absence of secondary markets. >> i would add briefly that i think your question really points out something very important and focused on an systemically and foreign institutions but there are absolutely systemically risky practices that it engaged in by a broad range of institutions no one of which might be systemically important institution but those practices taken together across the marketplace as a whole absolutely have the potential to create broad systemic risk with the financial system at large. >> my time is up but i will summon a question to you, chairman bair, about two fdic dispute riss is committed to banks because i don't quite understand the the community banks not the cause of the talent as we face getting into the same rate as entities that
create some of those risks, have greater risk for all so i don't quite get a bone love to hear the answer to. >> alan lead to thank you senator menendez and think the panel you have hung in it for a long time and i know we have all that additional questions which we will submit to you. thank you all. >> coming up a senate confirmation hearing for several u.s. msn and nominees
senate confirmation hearing for several embassador nominee is. but this is include utah republican jon huntsman, nominee to be ambassador for china. john kerry of massachusetts chairs the foreign relations committee and this hearing lasts an hour and a half. >> is a great pleasure to welcome some many outstanding public servants here today.
and i see former vice president of the u.s. sitting there and we're honored by your presence. thank you for being here among many others. we have six to have been nominated to serve as ambassadors. governor john huntsman as the next ambassador to china, john riss ambassador to japan, john allyson as ambassador to mongolia, and between them these nominees to bring roughly 120 years of government experience, a senior manager experience in industry and enormous amount of institutional knowledge and know-how. i know you have members of your family is here and what we will do is ask you at the proper time before your statements if you introduce them to the committee.
i apologize up front because i will be having to leave it to go to the finance committee, we are struggling to get the health care bill done and we have an executive session shortly. but senator web who chairs the subcommittee is going to chair this hearing and i think him for his role and diligent approach to the issues with all of east asia would which he has had a long interest in it and knows a lot about. obviously our bilateral relationship with china and japan in particular have enormous evidence across a range of global and regional issues from climate change to the financial crisis to the situation on the korean peninsula. in the years ahead those relationships are only going to become more pivotal perrin president obama's choice of utah governor john huntsman as ambassador to china honors the
best traditions of bipartisan foreign policy making. in the previous era when i have said that nominating the governor of utah to serve as ambassador to china and sending him from one wednesday to another. [laughter] one red states to another but there would have been very the rich shades of red. [laughter] today's china is a very different china. governor huntsman selection it is a great sign that the u.s.-china relationship is above politics. and i applaud this appointment. governor huntsman is an impressive a public servant with a new set of credentials for this latest task, he is fluent in both manner in taiwanese, his time as deputy u.s. trade representative and had been assistant secretary of commerce for asia has given him firsthand knowledge of the trade and economic issues that are at the center and of our relationship. his missionary work in taiwan and his service as ambassador to
singapore have left him with a deep knowledge of china and its neighbors. along the way governor huntsman have somehow managed in his family's oil business, been active in charitable work and held his wife, mary, to raise seven children including two adopted daughters from china and india. i am confident that he is going to do an exceptional job of representing our country in a pivotal moment in u.s.-china relations and i know the senators mccain, hatch, and bennett all of whom are here to voice their support for governor huntsman obviously feel very strongly this in my. ming i urge governor huntsman to apply his formidable talent to building america's partnership with china on climate change this issue belongs to the very center of u.s. china relations including next week's strategic economic dialogue. my own recent travel to china that make and send that there are now ready to play a constructive role and there are taking initiatives on their own
to deal with this issue. now we are going to be creative diplomacy to seize the opportunity and i anticipate, the governor for our conversation in your own thoughts and to embrace this challenge and taken on is marone. i also want to take a few moments i may just suzanne, words about the other distinguished member of our first panel. as president of thomas nominee to be our next ambassador to japan mr. roos will play a key role in all of america's most of the relationships. mr. roos maybe look well -- less well known to the american public is also an enormously just an expert and adviser to many with an outstanding record in his own right. what if you just look to the public officials who have come here today to show their support to our old senate colleague and my friend of bill bradley former vice president walter mondale, former speaker of the house tom foley, and last to serve as ambassadors to japan and the
third ambassador to japan senator howard baker has submitted his testimonial for the record. the president's endorsement of these remarkable individuals is a powerful statement about whether those who know mr. roos think of his abilities and how well he will do this job. having personally worked very closely with him in 2004i am grateful for his help and grateful for his friendship and i am pleased to add my name to the list of those one are enthusiastically supporting this nomination. in as the ceo of one of silicon valley's top international law firms mr. roos has deep insight into the intersection of science, technology and the global economy and that being seen firsthand the roots of u.s.-japanese cooperation in these areas he is well positioned to broaden and deepen our collaboration on issues like, a change in energy security and commerce and trade as well as global healthcare and a leading global offering of
over 1,500 employees and offices from san francisco shanghai mr. roos demonstrated his skills as a leader, a diplomat, mediator and problem solver. ti-another children and i know t outside of politics and i'm really pleased to be able to support this nomination. now it confirmed his many and diverse talents will serve him and our country well in tokyo america has been japan. archery relationship and the strength of our extended the term has been a linchpin of peace and security in the region for decades allow japan and other neighbors to grow and prosper. when today japan is in the midst of a season of political upheaval and possibly change but a matter what happens our commitment to japan security will not change our relationship based upon a bedrock of common and enduring interest of our use.
that is why president obama's first official working visit was with the japanese prime minister and that is why senator estes hillary clinton's press official trip abroad to asia began with a stop in tokyo. so we will work closely with whatever government emerges after august 3 and to maintain peace and stability in asia. at the same time the world expects to continue responsibilities as a common voice on a granite are planned and multilateral institutions and the developing world and respected leader on what perforation and highly regarded practitioner of soft power known around the globe to lead by example. while most of my comments have obviously focus on this first panel and also say the committee is deeply respectful of the service and quality is in each of the nominees to the various embassador ships represented here today, we're eager to hear
their thoughts and hopeful that we can get all of you to the floor of the u.s. senate as rapidly as possible what senator web. >> thank you mr. chairman and allied to associate myself with a great deal of the comments the chairman made a without a redundant and in many of those areas. we have a i think an extraordinarily confident group of ambassadors to move today. i am pleased to be supporting them and their nominations and i noted last week during the hearing that i chaired a on the ages maritime territorial disputes the united states is indisputably and importantly an asian nation. we have had a good deal of interaction of were in the past 30 years important that has accentuated the reality here and i have had the good fortune of
my life to spend a considerable amount of time in asia and as a journalist and writer and business consultant and government official and also as a marine. and the ambassadors that are being considered today run the whole spectrum of that region. over the past 24 years we have confirmed is series of challenges, such as longstanding territorial disputes, contentious trade disputes, issues of nuclear proliferation, environmental destruction and changing regional balance the kitchen -- concern us all. it is transforming as a result of economic integration it is changing much of the historic focus the u.s. has had on asia because of a spread of islam and certain parts of the region and competition over natural resources and the emergence of china appear now this by the changes would continue to approach the region in many
cases with a limited short-term scope which was the scope of the hearing that we held in a subcommittee last week. but nonetheless the strategic value should never be underestimated. this hearing with as many nominees underscore and the call for a comprehensive strategy to guide american policy in asia particularly in devising a response a proper response to the growing power of time in this region peridot maintaining the strategic balance is essential to protecting all of our interests and interests of some of our closest allies and partners. the countries depended on the united states to remain proactively and gaze into adopting a long-term commitment and our engagement in the region and orders the nominees as they take the perspective of positions to include in the strategic approach in their relations with the host countries. this approach should incorporate an awareness of regional trends
and understanding of how bilateral relations can be leveraged to pretend to american interests and also influence in the region. this hearing as i mentioned demonstrates in the geographical reach of american diplomacy in broader asia, northern china and japan, use of the marshall islands and west tajikistan and south to pop one beginning in with the new rules coaches and languages in this region is important for the united states to demonstrate consistency in our policy. i have argued that from burma to mongolia the united states should support free and fair elections and democratization. it's in our interest to do so just as it is in the interest of the country seeking meaningful reforms. among these nominees governor huntsman and mr. reuss will lead american diplomacy toward two of the u.s. largest trading partners. governor huntsman will have no shortage of critical issues including the course of military
modernization. economic restructuring, trade disputes, and dramas of pollution, human rights or religious freedom. as china's national power rose the u.s. has a key interest in ensuring the well-being of the region and the ability of states to develop in a fair and unfettered way. other states. china's resources led investment practices brad and sustainable development and environmental conservation in many places throughout asia and these practices should be properly addressed. the u.s. relationship with china as chairman kerry mentioned has always been an least since world war to the end of the linchpin of our relations in the region. and our task is now simply to maintain positive relations with japan but improving and deepen them. this will depend on the internal changes occurring within japan's political system as well as external challenges facing us both. with a rising china and stronger russia that broken process with
the denuclearization of north korea, the united states japan alliance has been and always will be central to the u.s. security in the region. the issue is not just the health of our economies and global leadership but the lives of the united states servicemen and women dedicated to peace in the region. i think all of our nominees and their values for their willingness to serve our country and would testify out ask that each nominee introduce their family members or those other persons and pour into the lives to have come today and as senator kerry mentioned we will have two panels. egil introduce the witnesses and those who have come to introduce them following senator inhofe opening questions give i thank you mr. chairman. >> first of all, let me thank
you for accepting me on this committee. i have wanted to be on this committee for a number of years and then the vacancy i am filling has given me the position of ranking member on your subcommittee so i will certainly be looking forward to that. mr. bowman came over and said in i did not have a name tag get any sense to worry because of the ranking member of the in renton committee across the hall so we can use the same name tag. an accord to this in enthusiastically looking for to serving on this committee. thank you mr. chairman giving thank you very much, senator inhofe. we have a number of our colleagues who have taken time out of their wine to be here today. it senators mccain, hatch and bennett will be introducing governor huntsman and senator mccain and, well, and the floor is yours.